2019 Journal of Community Bank Case Studies

Eastern Kentucky University

SECOND PLACE:

The Community Bank CEO Priorities for 2018 compiled by the American Bankers Association shares concerns from different leaders in the industry. One bank manager, concerned with accurate reporting, stated that a mistake with one data field has let to almost 250 extra man- hours of work (American Banker’s Association). Customer Due Diligence (CDD) is a major aspect of the Bank Secrecy Act (BSA). The FFIEC considers it vital in helping prevent money laundering, which is the BSA’s main purpose (Customer Due Diligence-Overview). CDD is intended to alert institutions to unusual customer activity and allow them to identify suspicious transactions or behaviors. Due diligence policies require banks to fill out complete customer profiles when opening accounts, update customer information files (CIF’s) on existing customers and to report unusual or suspicious activity (Customer Due Diligence Requirements for Financial Institutions). Community banks do not dispute the importance of due diligence in protecting the institution as well as customers, but some of the measures to comply can be tedious. The administrative burden multiplied with the expansion of CDD after the great recession. In the wake of the financial crisis, BSA rules were updated to “. . . strengthen due diligence requirements . . .” according to the Federal Register (FinCen, Customer Due Diligence Requirements for Financial Institutions). The new rules required changes to identifying beneficial owners on business accounts (FinCen, Information on Complying). These changes required employees of Kentucky

The Community Bank CEO Priorities for 2018 compiled by the American Bankers Association shares concerns from different leaders in the industry.

Bank, especially tellers and customer service representatives, to undergo further training on the Bank Secrecy Act, due diligence and opening accounts to keep up with procedural changes. It took more time on behalf of the bank and the customer to open an account, since it required more documents, time, and according to our partner, “multiple trips to the Bank which can understandably be frustrating to the customer” (CSBS Regulatory Burden Questions). In order to comply with the aforementioned regulatory changes, community banks like Kentucky Bank now have to focus many resources toward compliance. Kentucky bank itself now has 5 employees who focus specifically on regulatory compliance. Other departments in the bank outside of compliance have also implemented additional necessary training and policies. Kentucky Bank management states: “Departments throughout the bank have their own quality assurance subgroups to monitor our compliance to

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